Monetary and Economic Studies Vol.23, No.2 / May 2005

The Japanese Economic Model (JEM)

Ippei Fujiwara, Naoko Hara, Yasuo Hirose, Yuki Teranishi

In this paper, we set out the Japanese Economic Model (JEM), a large-scale macroeconomic model of the Japanese economy. Although the JEM is a theoretical model designed with a view to overcoming the Lucas (1976) critique of traditional large-scale macroeconomic models, it can also be used for both projection and simulation analysis. This is achieved by embedding a mechanism within which "short-run dynamics," basically captured by a vector autoregression model, eventually converge to a "short-run equilibrium," which is defined using a dynamic general equilibrium-type model.

Keywords: Large-scale macroeconomic model; Monetary policy; Numerical method; Projection

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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